ppc/ppf

• Production possibility frontier (PPF) or production possibility curve


  Very useful tools to illustrate the ideas of scarcity and choice in economics
• PPF/PPC


  • Shows the maximum possible production of two goods or services that can be produced with a given level of factors of production
  • Shows the various combinations of two goods and services that can be produced with a given level of factors of production
• Macro PPF


  • Shows the maximum possible production of all goods and services that can be produced with the level of factors of production in the economy
  • Shows the various combinations of all goods and services that can be produced with given factors of production in the economy
• PPF/PPC


  • Can show concepts like opportunity cost and efficiency
• Opportunity cost


  The cost of producing one good in terms of the other good that must be given up
• Concave PPF/PPC


  Illustrates the law of increasing opportunity cost
• Linear downward sloping PPF/PPC


  Illustrates constant opportunity cost
• Productive efficiency


  • Using all factors of production to their maximum level to get maximum production
• Productively efficient point


  Any point on the PPF/PPC curve
• Productively inefficient point


  Any point inside the PPF/PPC curve
• Allocative efficiency


  Whether what is being produced is satisfying consumer demand
• Pareto efficiency


  Nobody can be made better off without making somebody else worse off
• Pareto efficient point


  Any point on the PPF/PPC curve
• Increasing production on a PPF/PPC

  1. Use factors of production better

  2. Reallocate factors of production

  3. Shift the PPF/PPC curve by increasing quantity and/or quality of factors of production
• Shifting the PPF/PPC curve can favour the production of one good over the other